Dáil Éireann Debate, Thursday - 23 November 2023
87. Deputy Pearse Doherty asked the Minister for Finance the date on which he will transpose the credit servicers' directive by means of a statutory instrument; his assessment of warnings that the provisions of the directive could lead to an erosion of consumer protection and citizens’ rights; and if he will make a statement on the matter. [51434/23]
View answerAn estimated 113,000 mortgage borrowers in this State have had their loans sold to vulture funds. That includes approximately 80,000 primary dwelling homes. The aim of the credit servicers directive is to encourage the development of secondary markets of non-performing loans. Will the Minister inform the House of his Department's assessment of the impact this directive will have on consumer protection and citizens' rights, and the date he expects its transposition to take place?
The credit servicers directive provides for a common EU framework for the transfer and management of bank originated, non-performing loans, including mortgages, which are transferred or sold after 29 December 2023. It sets out an EU-wide regulatory arrangement for both the purchasers and servicers of such credit agreements, and in particular provides for a new EU authorisation framework for credit servicers to be overseen by national competent authorities. In the case of Ireland this will be the Central Bank of Ireland. Any credit servicer entity authorised under this framework will have the right to passport credit servicing activities across the EU based on a home member state authorisation.
In addition, the directive makes certain amendments to the consumer credit directive and the mortgage credit directive. At EU level, the directive will impose obligations on creditors, including to have adequate policies and procedures in order that they will be required to exercise reasonable forbearance before initiating enforcement proceedings and which shall take into account, among other elements, the consumer’s circumstances. The current domestic consumer protection framework already requires regulated entities to work with and assist a personal consumer in resolving arrears on a loan.
In particular, in respect of a loan secured on a primary residence, the code of conduct on mortgage arrears, CCMA, requires that regulated entities must make every reasonable effort to agree an alternative repayment arrangement with a co-operating borrower. Further, legal proceedings may only be commenced after the time periods set out in the code have expired.
The transposition of the directive does not reduce the scope of the existing consumer protection framework at either a national or EU level, including the application of the CCMA. It amends both the consumer credit directive and the mortgage credit directive to make certain improvements to those directives in the interests of consumers.
The directive will be transposed by way of a ministerial regulation made under the European Communities Act 1972 and my Department is working with the Office of the Attorney General and the Central Bank to finalise this legal instrument by the transposition date of 29 December 2023.
Is it not the case that the directive will provide for the outsourcing of debt collection and enforcement of the security, which could involve eviction proceedings by a credit servicer or a vulture fund? A number of concerns have been raised by consumer rights advocates, for example by Professor Padraic Kenna of the University of Galway. He says this directive could transform the treatment of non-performing loans, NPLs, in the EU. We know that 15% of home loans are already held by vulture funds, thanks to Fianna Fáil and Fine Gael. As the European consumer organisation has noted, those who seek to maximise profits on the back of vulnerable customers should face restrictions, not legislative support. They do not operate like traditional retail banks. It has been warned that the facilitation of lenders to sell NPLs to vulture funds that are not based in the EU and could outsource debt collection activities could lead to a race to the bottom. How does the Minister respond to some of those concerns from European organisations?
This directive will not substantially change the existing domestic regulatory framework governing loan sales, other than in the case of loans falling within scope, that is, non-performing loans sold by a bank to a non-bank from 30 December 2023. The purchaser of such loans will not now have to be authorised by the Central Bank or by a comparable competent authority in another member state. However, the credit servicer of such loans will have to be authorised and will have to comply with all consumer protection requirements. Therefore, the borrower will continue to maintain all the consumer protections following the loan sale. It should be noted that pursuant to the Consumer Protection (Regulation of Credit Servicing Firms) Acts of 2015 and 2018, any entity which requires or services a residential mortgage loan now falls within the regulatory scope of the Central Bank, either as a credit institution, a retail credit firm or a credit servicing firm. I will respond further in a moment.
It has been noted that these vulture funds and debt collection servicing credit agents will operate under different legal traditions and consumer protection codes. It is clear that this directive will have a greater impact on poor households. There is every possibility that Irish households could see decisions made about their loans being made by vulture funds that are not registered in EU member states. That is the position the Minister has just outlined. We have seen the disastrous consequences of the sale of mortgage loans to vulture funds. These consequences have been made clear in recent years with households facing aggressive interest rate hikes by vulture funds that they would never have seen with main street lenders. It is crucial that the non-performing loan market is not further expanded to the detriment of consumers and vulnerable customers. That is what the directive will do. It will allow for other non-regulated entities to purchase these loans outside of the European Union. That is an issue that the finance committee will consider in the coming weeks at my request. What assurance can the Minister give that the transposition of this directive will not see a further weakening of consumer protection?
First, it is a directive, so transposition is a requirement. We will transpose the directive by means of a ministerial order in the coming weeks and active work on that is ongoing. We already have a very well established body of law to protect the rights of consumers. We have the 2015 Act, amended by the 2018 Act. In many respects what the EU is doing here is catching up with what countries like Ireland have already done by ensuring that where loans are sold, the statutory protections and system of regulation continue to apply.
The Deputy has raised a specific issue on the role of debt collection agents. I will take that away and examine what he has said on the record in that regard and come back with a formal response.
